Interviews

ELIAMEP: Professor Pisani-Ferry, thank you for giving us this interview. You have co-organised together with ELIAMEP the conference on Economic governance in the eurozone and the EU, being the director of BRUEGEL. How do you see the role of the IMF in the eurozone? There has been significant public concern about its presence. Do you consider this a challenging development for the euro and the political aspirations for further economic and political integration?

Jean Pisani-Ferry: What is challenging is that there was a need to call the IMF, not the fact that the IMF is involved. I was early on in favor of involving the IMF because I think the management of crises is something that requires specific expertise and people experienced with dealing with crises. We don’t have this expertise and experience in the EU, certainly not in the Commission because is not the job of the Commission. So, when you are in a very severe crisis where you have the threat of collapse you don’t want to improvise to learn how to manage crisis. That is why it is good to have the IMF involved. Furthermore, there were no clear legal provisions, this was not part of the Treaty, so it was good in this respect, to build on the experience of what has been done with Latvia, with Romania, a joint EU-IMF involvement. Finally, each and every member of the euroarea remains a member of the IMF; it is entitled to go to the IMF and request assistance. So, it would have been strange to prevent countries with the right to go to the IMF from seeking IMF assistance.

ELIAMEP: Professor Mulas-Granados, thank you very much for giving us this interview in the context of ELIAMEP’s 7th Annual European Seminar co-organised with BRUEGEL and the support of the Jean Monet Actions of the European Union. How would you realistically expect the Eurozone to confront the internal imbalances between the North and the South? And do you think this can be done in a manner that would not make the European project and the Euro unpopular with national electorates?

Mulas-Granados: I think that probably adjustment is going to occur as follows: There is going to be an adjustment in the South, which was postponed literally when the European Monetary Union started, that means an adjustment in terms of salaries and in terms of all well all measures of competitiveness, and productivity will have to increase. That is going to be one part of the story. While in the North, especially in Germany there is going to have to be more internal spending to try to absorb also the other part of the shock. So, for the Northern part, to maintain stability there is going to have to be an adjustment because this is part of being in a Monetary Union, and in the South there is going to have to be another adjustment because that is part of being in a Monetary Union. So, probably what is going to happen is that both sides are going to feel differently, but they are both part of the same adjustment. In order for this not to be politically uncomfortable I think politicians really need to explain what the whole story is about. Being part of a project means making adjustments on both sides so there is real convergence and not only nominal convergence. We stopped at nominal convergence and now we are saying that we have to move forward and complete real convergence.

ELIAMEP: How do you see the role of the different EU institutions in this process, considering the framework of the crisis?

Mulas-Granados: The Euro itself as an institution is the currency that is going to play the role. The Commission could help and probably the Commission is able to make a proposal, for example for the next financial perspectives and link those financial perspectives to need for the adjustment. Not just by giving subsidies to the common Agricultural Policy or to the traditional problems but [also by taking] that amount of money and trying to ease the transition and the adjustment for both sides. I think that would be very helpful and the Commission could have this role. And then, at the end of the day in the current framework it is the member states the ones who have to actually adjust, but the Commission could play a more proactive role in this respect and of course the European Central Bank is the one that is going to be fighting for the euro’s stability so its role is always strong in this sense.

Daniela Schwarzer, (Dr.), German Institute for International and Security Affairs

June 12 2010

ELIAMEP: Dr. Schwarzer, thank you very much for giving us this short interview for ELIAMEP’s blog, and welcome once again to ELIAMEP’s 7th Annual European Seminars. The question I have for you is the following: “For many this crisis has led to a marginilisation of the EU institutions and a stronger turn to intergovernmentalism. Do you agree?

Daniela Schwarzer: Well, in the first phase of the crisis we clearly saw a very strong rule for the most federal European Institution that was the European Central Bank, in the management of the financial market instabilities. But then, when it came to the real economic crisis we saw that the member states went about their own stabilization programme. It was very difficult to get a European approach to the question of how much fiscal stimulus is necessary. The European Commission at the time was trying to push the idea to have a European stimulus, a stronger one and in the end it managed to get a 5 billion euros stimulus package but at the time, indeed, the analysis was that the member states were rather doing what they wanted to do, they didn’t work in a European perspective. Now, we have the phase of discussing the reform of the Eurozone to solve the debt crisis we are living through right now. And the current reform debate in my view will not lead to stronger European Institutions in the sense of giving an extremely strong leap forward towards a political Union but we will see a strengthening of rules, of fiscal rules, rules of coordinating economic policy and, indeed, in the end we might have more Europe in that regard.

ELIAMEP: So do you think there is a contrast to be made between the roles of the European Commission, the European Parliament and the European Central Bank that you mentioned before?

Daniela Schwarzer: Yes, the European Central Bank clearly had the strongest role in the first phase of the crisis and it has increased over time because now the ECB is involved in surveilling budgetary policies in some countries. For instance [in the case of]Greece [this is taking place] in a stronger degree than it used to and also the ECB is buying Greek bonds which means that is also part of the stabilization approach to the Greek fiscal problems. The European Commission is gaining importance right now first of all because of the change of treaty base. The entering into force of the Lisbon treaty, gives the European Commission a formal and stronger role in fiscal policy coordination and economic policy coordination and has been very active in the reform debate. The Commission put forward a proposal for Eurozone reform on the 12th of May and the proposals that were in there are now the basis of the discussion of the so called Federal Point Taskforce which is working on the reform of the Eurozone. The European Parliament is active in many ways, in drawing conclusions from the economic and financial crisis. First of all informally, it is of course a closed dialogue. There is the monetary dialogue with the ECB president, there is a dialogue with Eurogroup president but also the European Parliament is involved in legislative procedures. There is a decision procedure running for setting up a European Financial Supervision Structure and the European Parliament is a full player here and the same will be true for further legislative action regarding financial market regulation.

ELIAMEP: Professor Masciandaro, thank you very much for giving us this short interview for ELIAMEP’s website, we are here together in the context of ELIAMEP and Bruegel’s Economic governance in the eurozone and the EU conference. How do you assess the progress made regarding financial regulation at the EU level?

Donato Masciandaro: We have no progress in financial regulation. EU politicians seem to be more able to face a crisis, and they did very well during the crisis, but they seem to be unable to prevent a crisis. To prevent the crisis means to build up growth for the case of public debt, and public debt means to build up fiscal growth and this is, as you know, more difficult both from the economic and from the political point of view. So, politicians in general, are more able to manage a crisis rather than to prevent it. Regulation means prevention of a crisis. From this point of view, the reaction was slow and not adequate at all.

ELIAMEP: You think that politicians haven’t done enough so far, but why?

Donato Masciandaro: They reacted using political cost-benefit analysis. In normal times, who cares about financial stability. If nobody cares this means that financial regulation and supervision is a matter for bureaucrats. Then during and after the crisis, they [politicians] arrived and tried to provide solutions but they don’t know anything [about the issues]. So they prefer to build up very urgent and temporary measures rather than trying to implement structural reforms. This is the reason why you had different reactions during different phases of the problem.

ELIAMEP: How do you react to the recent attacks of EU political leaders against speculators?

Donato Masciandaro: They know the right problem. The problem is to regulate markets that are so far not regulated. For example, the derivative market, the CDO market, the current account market. This is a problem, but they use the wrong approach in my view. They prefer to ban activities rather than to regulate them. Because to ban is easier. It is easier for politician, easier for the bureaucrats. So, instead of trying to build up new markets, they prefer to ban them.

ELIAMEP: Would it be enough to regulate the supervision of financial markets or does the EU need certain institutional changes?

Donato Masciandaro: It is urgent and it would be important to build up a European financial supervisory. In my idea, the architecture should be very simple. There are two public goals. On the one side monetary stability and the European Central Bank is already in charge of pursuing monetary stability. We have monetary financial stability, and we have to have financial regulatory authority, different from the ECB. This should be the final point of the architecture. Actually we have a proposal in which the politicians choose the whole approach: a banking authority, a security market authority and an insurance authority. This is an absolute view of the market, but you know in this manner you can protect your bureaucrats and politicians are happy. It is easier to build an obsolete architecture rather than a new one.

ELIAMEP: Professor Vines thank you very much and let me welcome you once again to ELIAMEP’S 7th annual European Seminar. I would like to ask you one question. How would you realistically expect the Eurozone to confront the internal imbalances between the north and the south?D

David Vines: Well it’s a really urgent question and there are two issues that are necessary to deal with. First of all, there needs to be some clearer rules as to how countries in the periphery, in the south, deal with their positions of un-competitiveness. So that countries, like Greece, do not spend too much to the point that they end up in a crisis. This is true of Greece, different for Spain. But still, there is a need for understanding what the necessary policies are. For the surplus countries, it’s very different. These countries, particularly Germany, are deliberately organizing a cutting of their costs (…)and then are spending too little. And if this continues, Europe will end-up with too little demand, structurally going forward, and that doesn’t make up for a well designed system.

ELIAMEP: No that’s not good. But then, so do you see, a risk of a two currency blocks developing in the EU? And if so what is needed in your opinion to avoid this?

David Vines: I don’t see this. Certainly [this is] not something that we should prepare for. The whole structure of the European Union was to bring North and South Europe together, France and Germany, and it would be a real tragedy if we ended up in Europe with two currency blocks. But the two things I described a moment ago, are what is necessary to ensure that this doesn’t happen.

Jose E. Leandro, (Mr.), Advisor to the President of the European Council

June 12 2010

ELIAMEP: Mr. Leandro thank you very much for giving us this interview and once again welcome to ELIAMEP’S 7th annual European Seminar, which is organized in cooperation with Bruegel and the support of the Jean Monnet Action of the European Union. So , since we are talking about the economic governance in the Eurozone, in the EU, I would like to ask you: How do you feel about the fact that for many observers this crisis that we are facing has challenged the concept of solidarity, that has been considered crucial and at the core of the European project. How do you asses this observation?

Jose Leandro: Well, I think this crisis has highlighted a number of issues; one of them is that one. That we need to have a credible crisis management mechanism in a monetary union where you have monetary policies centralized and fiscal policies decentralized. And so, a monetary union of this type without a credible crisis management mechanism is problematic. So that is one aspect. The other aspect is also linked to this. When you have decentralized fiscal policy you have to have very strong roles and incentives for people to treat fiscal policy as a matter of common interest. We had the SGP, the Stability and Growth Pact, it has not performed in the way it should, also because some Member States, Germany and France, in 2003 weakened the Pact because that suited them at the time. So now we have to come back to more fiscal discipline and one way of doing it is also by strengthening the SGP but not only. We need to complement the SGP with other things.

ELIAMEP: So do you think there is a contrast to be made between the roles of the European Commission, the European Parliament and the European Central Bank? What’s your opinion on this?

Jose Leandro: Well, the mandate of the Central Bank is very clear and its set in the Treaties and should not be touched. They have an effective mandate and are an independent institution, their mandate is about monetary policy and price stability. [Now] the Commission and the other institutions. The role of the Commission in the reform of the fiscal governance, is being very active. Actually the Commission is amongst those that have proposed a lot of ideas, and most of the ideas that we are discussing now in this task force that is chaired by President Van Rompuy come from the Commission. So the Commission is a very active player in this process of redesigning economic governance.

ELIAMEP: Professor Christodoulakis, thank you for being here at the conference on economic governance in the eurozone and the EU, co-organised by ELIAMEP and BRUEGEL. What would you say to those who are betting that the euro will not exist in 10 years from now?

Christodoulakis: I remember 10 years ago when the EMU was just about to be created. There were several economists and politicians, especially from the United States and the UK that were predicting that the euro would not exist in ten years time. But the project was actually successfully materialized and overcame several difficulties that were foreseen before. At that time, Europe was again in recession, so there were many differences between member states. Today again, the European Union is in some sort of recession. Several countries are in deep crisis but I still believe that the euro is not the problem but the solution to the current malaise. I think that European societies can mobilize to address the underlying economic and political problems by coming together, by becoming more united. So, I thing that now what is needed is more policy coordination, especially fiscal policies. But also, we need a pan-European initiative to create better infrastructure, to create a more assimilated and advanced institutional framework so that the countries which are lacking behind today, such as for example the European Southern countries, especially Greece among them, [ improve] and escape the current crisis.

Peter Bofinger, (Prof.), German Council of Economic Affairs Advisory Board

June 11 2010

ELIAMEP: Professor Bofinger thank you very much for giving us this interview for ELIAMEP’s blog and welcome once again to the 7th annual European Seminar that is organized with the cooperation of BRUEGEL and the support of the Jean Monnet Actions of the European Union. And since our topic is to draw lessons from the crisis on economic governance in the eurozone, I want to ask you what is your opinion on the fact that for many observers the ongoing crisis has highlighted on the one hand the growing unease inside Germany regarding developments in the EU and on the other a mounting criticism outside Germany concerning its approach towards the situation in the eurozone. So, how do you assess this situation and what further challenges do you expect?

Peter Bofinger: Well, the situation is indeed difficult especially in Germany. This is due to the fact that the euro never arrived in the hearts of Germans. Germans still feel the loss of the Deutschmark as a major lack. And so there is not much sympathy in Germany. The problem in Germany is certainly that while our economy is profiting so much from the euroarea and from the stability of exchange relations within the euroarea, this is not communicated sufficiently enough from our politicians to the citizens, I think. This is certainly a very very serious problem. I must say that from the perspective of other countries, I can to some degree understand the criticism of what is going on in Germany. In Germany the domestic demand of all consumption has remained stagnant in real terms for the whole decade and this is certainly not a model for the euroarea. If all countries had behaved like Germany is, keeping their domestic demand stagnant for ten years, German export wouldn’t have gone up. So I think that the criticism is really warranted. On the other hand, one must also say the criticism of some Germans with what is going in Greece is also warranted. I think there is no justification for the fiscal indiscipline in Greece during the last ten years, even economic growth in Greece it was excellent, was one of the strongest growing countries and the problem was simply that the governments or the politicians were not willing to tax incomes in an adequate way. So, in Greece, public expenditures in relation to GDP were about 45% in 2006-2007 and this was more or less the average for the euroarea so that was fine, but government revenues were 40% and this was simply insufficient. And Greece is a country which has the lowest taxes on income on profit in the OECD and this is something which was clearly wrong and must end. My fellow citizens in Germany also say well of course that all the statistical [issues are problematic, and ] this is something which is difficult to accept and of course it also makes it difficult in Germany to generate a feeling of solidarity [towards Greece].

ELIAMEP: Since you referred to the concept of solidarity, what is your assessment on the observation that the crisis has challenged this concept, which for many is considered crucial and at the core of the European project?

Peter Bofinger: Well, I think the crisis has certainly shown that the relationship of monetary union has reached some kind of middle position between purely nationalist – national policy making and between a truly coordinated approach and I thing that this middle position is not a stable equilibrium. So governments, politicians and citizens of Europe have to decide what they want. I think monetary union is an important relationship for Europe, it’s important for Europe to speak with one voice in the monetary sphere and it would be a disaster to go back to monetary nationalism. But the choice is not either to intensify the coordination in the sphere of fiscal policy, wages and also financial … I think either go ahead and this means either you have to give up some national competencies or really one has to go back to nationalism. But in my view, that would be a disaster.

ELIAMEP: So backwards or forwards basically?

Peter Bofinger: Yes, the median position is simply an unstable equilibrium